Few firm owners seem to fully understand what “scaling” a business really means, and for the most part, it isn’t their fault.
For instance, when you Google the term, there are varying definitions; most, if not all, don’t really apply to small, professional service businesses, such as independent advisory firms. They apply mostly to product-based businesses, those that sell, say technology, not advice.
That doesn’t mean “scaling” isn’t important to independent advisory firms. The term just needs to be reinterpreted to address the different needs of service businesses.
Simply put, “scaling” in the independent advisory world is the idea of increasing revenues without increasing overhead, thus boosting profitability. For an advisory businesses, the goal of “scaling” is to set the stage for growth — increasing clients, services and staff — while, at the same time, continuing to increase the bottom line.
The good news is, in smaller businesses such as advisory firms, the impediments to increasing profitability are far fewer than in many other enterprises and are more easily managed if you know where to look.
In fact, the all-too-common erosion of profits in growing advisory firms almost always stems from a single problem — and thus it has a single solution.
Many firm owners cite increased technology as the solution to scaling and productivity problems.
Tech may be a solution for large businesses, but for smaller firms like those led by advisors, the high — and growing — costs of technology and its training and maintenance more often than not serves to further erode an advisory firm’s bottom line.
Instead, I’ve found that an increased focus on client communication can be far less costly and far more effective. Most advisory firm owners and their advisors aren’t setting client expectations and boundaries, which results in a loss of cost control on their services.
The real problem is they often “over service” clients — and will even add more costly, time-consuming, services when asked by the client. As a result, adding more clients can actually cause more damage to a firm’s bottom line.
To gain control of the costs of services, firm owners and senior advisors must have a clear understanding of what they will and won’t do for their clients